26 Pages Posted: 14 Jan 2011 Last revised: 19 Dec 2011
Date Written: December 18, 2011
This paper considers duopolistic firms targeting informative messages to consumers who share information locally with their neighbors in the network graph. A monopolist targets efficiently by sending messages to a parsimonious set of nodes that leave the whole population informed either directly or by word-of-mouth. A duopolist faces a tradeoff between this efficient targeting and possible preemption by a competitor's message. Under gentle price competition, duopolists saturate the network when sending messages is cheap, and target sets similar to the monopolist's when sending messages is costly. Under fierce price competition, duopolists' messages divide the network in an intermingled patchwork segmentation.
Keywords: word-of-mouth, oligopoly, social networks, direct marketing
JEL Classification: D83, D85, L13, M31
Suggested Citation: Suggested Citation